ZAGREB, November 7, 2019 - The European Commission on Thursday mildly revised down Croatia's growth outlook from the initial 3.1% to 2.9% in 2019, due to a slower growth rate in the country's main trading partners, and in the next two years, the EC expects investments to robustly rise in Croatia, alongside a record low employment rate and a declining public debt.

"As growth in Croatia’s main trading partners moderates, domestic demand will remain the main driver of economic activity," the EC says in its latest document called "European Economic Forecast for 2019, 2020 and 2021".

"Household consumption remains strong, driven by growing employment and wages as well as low inflation. Investment is set to continue growing strongly, backed by EU funds, and government consumption is also expected to support growth. The economy should continue adding jobs, but at a slower pace as labour shortages appear in some sectors," reads the document's section on Croatia.

The Commission also expects Croatia's the debt ratio "to continue declining steadily as the general government balance turns from mildly positive to neutral."

In 2020, Croatia's growth is set to rise at a rate of 2.6% and in 2021 by 2.4%.

In the previous document, the growth was projected at 2.7% both in 2020 and 2021.

The investment growth is projected at robust 8.8%, whereas in 2018, it was 4.1%. In 2020 the investment growth rate is projected at 7.5% and in 2021 at the rate of 7.2%.

"Driven by the rising uptake of EU funds by both the public and private sectors, investment growth is expected to record growth rates above those observed since 2015 throughout the forecast period. Furthermore, favourable financing conditions should remain supportive of private investment."

The Commission notes that economic activity in Croatia regained momentum in the first half of 2019, after a weaker-than-expected performance towards the end of 2018.

"Real GDP rose sharply in the first quarter, by 1.5% quarter-on-quarter, followed by more moderate growth in the second quarter, at 0.2%. Based on high frequency indicators, growth is expected to remain moderate in the second half of the year, bringing the forecast for 2019 to 2.9%.

Domestic demand is driven by strong household consumption and is supported by public consumption and investment, which benefits from increasing use of EU funding. Despite a recovery in exports, net exports are set to negatively contribute to growth due to the strong performance of imports.

"Throughout the 2019-2021 period, domestic demand is forecast to remain the main driver of GDP growth. Ongoing improvements in the labour market, rising wages and low inflation will continue to drive household consumption. A stronger contribution from public consumption is expected, driven by rising intermediate consumption and increasing public sector wages."

The Commission also projects that overall, Croatia's trade balance is expected to deteriorate throughout the forecast period and the current account balance is expected to gradually decrease to 0.3% of GDP by 2021.

"In 2019, the general government balance is expected to remain in surplus for the third year in a row," says the Commission.

"Revenues are performing strongly in spite of tax cuts, which particularly affected revenue from VAT and social contributions. Expenditure grows primarily due to wage hikes in the public sector, investment and intermediate consumption.

"In 2020-2021, tax revenue is expected to grow at a slower pace than nominal GDP, due to further tax cuts. EU funds are projected to continue supporting revenues as the programming period enters its most mature stage."

"Expenditure growth should continue in 2020 and moderate somewhat in 2021, largely due to the strong base effect of the rising wage bill, investment and capital transfers in 2018-2019. Additional savings are expected in interest payments, most notably in 2020, as a sizable portion of maturing debt is refinanced at lower rates."

The Commission expects Croatia's budget to remain balanced. "In structural terms, the general government deficit is expected to increase from 0.3% of GDP in 2018 to 1% of GDP in 2020 and decrease slightly in 2021. The debt ratio is set to continue declining strongly on the back of surpluses and nominal GDP growth, dipping below 65% of GDP in 2021."

More economic news can be found in the Business section.

ZAGREB, October 20, 2019 - Based on the movements of its CEIZ index, the Institute of Economics, Zagreb (EIZ) expects Croatia's real GDP to rise by 2.4% in the third quarter of 2019 compared with the same quarter of 2018 and by 0.6% compared with the second quarter of 2019.

After somewhat lower values in June and July this year, the CEIZ index improved in August, but failed to reach considerably higher values recorded in January and May.

The index has been falling year on year since January 2019. In the first two quarters of this year its decline even accelerated compared with the previous three months, averaging minus 1.6 points.

Seasonally adjusted data show that three of four CEIZ index components increased in relation to July, while central government budget VAT revenues declined by 14.2%. Year on year, the largest increase was recorded for tourist arrivals, which went up by 7.8% compared with August 2018.

Compared with the second quarter of this year, the CEIZ cumulatively increased by 0.6 points in July and August. The average value of the index in these two months was 1.4 points lower than the average index value in the third quarter of 2018.

"Such dynamics of the CEIZ index suggest that economic activity in the third quarter of this year rose at a slower rate than at the same time last year, but also that it picked up slightly in relation to the previous three months. Based on CEIZ index movements, we expect the annual real GDP growth rate to reach 2.4% in the third quarter of 2019, which is equal to the official growth rate in the second quarter of this year. Seasonally adjusted data indicate that GDP in the third quarter of 2019 rose by 0.6% quarter on quarter," EIZ said.

More news about GDP growth can be found in the Business section.

ZAGREB, October 15, 2019 - The International Monetary Fund (IMF) has revised upward the projection of Croatia's real Gross Domestic Product for this and next year, saying that Croatia's GDP growth in 2019 is likely to be twice as strong as the growth of a group of countries which the Washington-based fund calls "Emerging and Developing Europe".

Croatia's economic growth is projected to revive to 3% in 2019, according to the IMF Winter Economic Outlook (WEO), which is 0.4 percentage points higher than the Fund's estimate released in April.

In 2020, Croatia's economy is expected to grow by 2.7%, which is 0.2 percentage points more than in the previous projection.

The IMF also estimates that Croatia's economy grew by 2.6% in 2018, which is 0.1 percentage point lower than in its previous forecast.

Croatia's economic growth of 3% in 2019 is twice as high as the projection for "Emerging and Developing Europe" which, apart from Croatia, includes Russia, Turkey, Poland, Romania, Ukraine, Hungary, Belarus, Bulgaria and Serbia.

The aggregate economic growth of that group is estimated by the IMF at 1.8% in 2019, and in 2020 the group's growth rate is set at 2.5%.

The main reason for the slower economic growth in "Emerging and Developing Europe" is Turkey's economic stagnation this year, which neutralises Hungary's 4.6% growth projection and Poland and Romania's growth projection of 4%.

The IMF also projects Croatia's unemployment rate of 9.0% this year to further fall to 8% in 2020, after it stood at 9.9% in 2018.

Croatia's consumer prices index is put at 1% in 2019 and 1.2% in 2020.

Croatia's current account balance surplus, expressed as a percentage of GDP, stands at +1.7% and +1% in 2020, after it stood at +2.5% in 2018.

More GDP growth news can be found in the Business section.

ZAGREB, October 9, 2019 - The World Bank (WB) has upgraded its forecast of Croatia's growth for 2019 mainly thanks to solid domestic demand while the growth rate is expected to slow down over the next two years due to a slower increase in household consumption and investment as well as due to weaker foreign demand.

Croatia's growth is expected to pick up slightly in 2019 to 2.9%, the World Bank forecast in its Economic Update (ECA) Fall 2019 released on Wednesday, upgrading it from its June outlook by 0.4 percentage points.

In 2018, Croatia's GDP increased by 2.6%.

The WB slightly increased its outlook for Croatia's growth in 2020, by 0.1 pp to 2.7 percent, while in 2021 it foresees a slower growth of 2.4% which is equivalent to its June outlook.

Household consumption will make the largest contribution to overall GDP growth, which WB foresees will increase by 3.7%, reflecting further growth in employment and wages but also rising household borrowing.

A significant contribution could also come from investment activity both in the public and private sectors, partly reflecting greater EU funds absorption.

The WB foresees gross fixed capital to increase by 8.3% in 2019, double that of 2018. Government consumption is expected to increase by 3.5% after increasing by 2.9 pp in 2018.

The trade balance will continue to deteriorate and is expected to be higher than in 2018 considering that imports are expected to grow driven by strong domestic demand while exports are set to moderate and remain at last year's level.

The WB projects that Croatia's exports could increase by 2.8% while imports would grow by 6.3%. In 2018, exports increased by 2.8% and imports by 5.5%.

In 2020 and and 2021 that rate would remain stable at this year's level while the increase in imports should slow down to 5.3% in 2020 and 5.1% in 2021.

Inflation this year should slow down to 0.9%, down from last year's 1.5%. Next year inflation could step up to 1.0% and then to 1.4% in 2021.

In the next two years economic growth is expected to slow down due to expected slowing of household consumption as employment and wage growth gradually decelerate.

Investment growth too is set to moderate with an estimated growth of 6.4% of gross fixed capital investments in 2020 and 6.3% in 2021.

Exports might also edge down on the back of weak external outlook.

"Risks are skewed to the downside. Exports of goods are exposed to the risk of faster slowdown in external demand of Croatia’s main trading partners," the WB underscored.

"Tackling the weak potential of the Croatian economy would require a broad structural reform agenda with the aim to increase low productivity by raising the quality and mobility of both human and physical capital," the WB said.

The general government budget is expected to remain close to balance over the next two years, as revenues are expected to remain buoyant, while interest expenses could further diminish, the WB estimates.

A budget surplus of 0.2% is expected for 2019 while in 2020 a budget deficit is estimated at 0.2% and a balanced budget in 2021.

The public debt to GDP ratio could decline further to 70.4%, down from 74.5% in 2018. In 2020 it is expected to fall to 67.5% and in 2021 to 64.6%.

The WB warns that the decline in public debt could be negatively influenced by "strong pressures for wage increases in the public sector and a possible increase in spending before the general elections scheduled for Autumn 2020."

The report adds that "moderate economic growth should lead to steady income growth for the poor."

"Assuming that growth from 2019 onwards is equally distributed across all individuals, poverty would decrease from 4.2 percent in 2018 to 3.9 in 2019 and further to 3.3 percent by 2021," the WB says in its autumn outlook of Croatia's growth.

More GDP news can be found in the Business section.

ZAGREB, August 28, 2019 - Prime Minister Andrej Plenković on Wednesday described the GDP growth of 2.4% in the second quarter of 2019 as good and positive news, underscoring that the government is doing everything to strengthen the Croatian economy's resilience to a possible new recession.

The State Bureau of Statistics (DZS) on Wednesday released its initial estimate according to which GDP in Q2 rose by 2.4% on the year. That is the 20th quarter in a row that GDP increased but significantly slower than the 3.9% rate in Q1.

"That means that we are at the level of the first six months of a 3.15% growth rate which I think is absolutely in line with the European Commission's summer forecast released a few weeks ago. That is still above the average growth that we ourselves forecast in our Economic Guidelines and Fiscal Policy," Plenković told reporters in the eastern town of Osijek.

The European Commission forecasts an annual GDP growth for Croatia of 3.1% while the government has estimated that it will be 2.8%.

Plenković says that the data released today are showing a large growth of gross fixed capital formation, rising exports, and considering a high basis, a slightly slower rise in imports in the second quarter, and added that it is necessary to work on increasing industrial production.

The greatest positive contribution to GDP in Q2 was generated with the growth of gross fixed capital formation. Those investments grew by 8.2%, which is however somewhat slower than in the first quarter when it increased by 11.5%.

"Croatia's economy is growing for the 20th consecutive quarter, hence we are recording a continual growth which is positive and good," Plenković said.

He reiterated that during the term of his government the average monthly pay increased by 800 kuna, the average pay in the city of Zagreb is about 7,500 kuna, indexation on pensions has increased by more than 12% and the number of beneficiaries was growing and that with its budget discipline the government has generated a surplus for two years in a row despite unplanned payments for enforced guarantees of 4.5 billion kuna for the Uljanik shipyard.

"As a government, we are doing everything for the Croatian economy's resilience to grow," Plenković told reporters when asked if Croatia would be prepared for a global recession that economists have been forecasting.

He added however that economic trends have to be monitored in countries with which Croatia has a high level of trade.

He also underlined that Croatia's GDP growth in Q2 was a lot higher than the EU average.

Recently Eurostat released a report showing that the EU growth in the second quarter increased by 1.3% on the year.

Croatia's economic growth in Q2 was 0.2% the same as the EU's Q-on-Q.

Finance Minister Zdravko Marić on Wednesday said that Croatia's GDP growth of 2.4% in the second quarter was as the government and ministry had expected, he warned however that the Croatian economy was still highly dependent on imports.

Addressing the press, Marić said that several good things can be concluded from the figures released by DZS today but also several warnings that aren't just related to the second quarter but regarding Croatia's economic structure in general.

In reference to the warnings, Marić said that growth structure, particularly on the expenditure side indicated a negative growth rate of commodity exports as well as a high growth of imports once again, particularly commodities but of services as well.

"The import of commodities and services has that "deductible" component and negative contribution to GDP growth," Marić said.

Marić underscored that Croatia's economy is still highly dependent on imports and we all have to focus on additionally strengthening local productivity and creating added value so that that import dependency is reduced.

On the other hand, positive trends on the expenditure side of GDP is continuing with increased personal consumption which Marić described as completely following the trend of retail growth but also increased employment and wages. He added that as soon as domestic demand records a growth, be that personal consumption or investments, a strong import component is noticed and that needs to be emphasised.

Although the IMF and the EC recently upgraded their GDP growth estimates for Croatia, the government however remained cautious and did not wish to exaggerate its forecast for the second quarter and that Croatia's forecast of annual GDP growth will remain at 2.8%.

Asked by the press whether he was concerned by the fact that Germany and Italy, which account for 40% of the destinations for Croatia's exports are on the brink of a recession, the minister said that the duty of the government is "to make the country resilient to all scenarios".

More economy news can be found in the Business section.

ZAGREB, August 28, 2019 - In the second quarter of 2019, the Croatian economy increased 2.4% on the year, markedly slower than in the first quarter, when GDP growth jumped to 3.9%, the national statistical office said on Wednesday..

The second quarter of this year was the 20th quarter in a row that Croatia's GDP grew.

The biggest positive contribution to GDP came from a 8.2% growth of gross investments in fixed capital, which was down from the 11.5% growth recorded in Q1.

The contribution of domestic demand was positive, as was the contribution of final consumption and gross investments.

The net foreign demand contribution was negative.

In Q2 2019, household consumption went up 2.7% on the year, as against the 4.4% growth in Q1, while government consumption went up to 3.9% from 3.1%

The export of commodities and services went up 1.3%, slower than in Q1, with commodity exports decreasing by 0.9%, while service exports went up 3.6%.

The import of commodities and services went up 6.7%, with commodity imports rising by 7.9% and service imports by 1.3%.

In Q2 2019, according to seasonally adjusted data, Croatia's GDP grew 0.2% from Q1 2019 and 2.5% from Q2 2018. This was higher than the EU average. Eurostat said recently that in Q2 2019 the EU economy grew 1.3% on the year and 0.2% on the quarter.

More news about GDP growth can be found in the Business section.

ZAGREB, July 15, 2019 - The lack of qualified labour has become the main obstacle to growth in many countries, so it is necessary to create an environment which will motivate talented individuals to stay, and this includes raising salaries, Croatian National Bank (HNB) governor Boris Vujčić said in Dubrovnik on Monday.

He was speaking at the opening of the international conference "Demographics, Jobs and Growth: Navigating the Future in Central, Eastern and Southeastern Europe", co-organised by the HNB and the International Monetary Fund.

The conference focuses on labour market and demographic challenges, the future of labour, and policies needed to sustain growth and reach Western European levels of income. Present are, alongside HNB and IMF representatives, Croatia's Prime Minister Andrej Plenković and Finance Minister Zdravko Marić, 15 central bank governors and finance ministers from Central, Eastern and Southeastern Europe (CESEE), representatives of the World Bank, the European Commission, the Bank for International Settlements and other institutions, as well as experts from the universities of Oxford, London and Tartu.

Vujčić said understanding the ties between demography, jobs and growth was an increasingly important topic for CESEE countries as a rapidly decreasing labour reduced the potential of catching up with the rest of Europe.

The topic is also relevant for many other countries hit by ageing populations and economic migration, Vujčić added.

Owing to more efficient public health systems and lower fertility rates, the average European citizen is older than in the not so distant past, and the median age in the EU has risen by 4.5 years since 2000, he noted.

For less developed European countries, the challenge of ageing populations is tied to the challenge of emigration, which is the cause of big structural problems, jeopardising not only the viability of pension and health systems, but also affecting their growth potential, Vujčić said.

Major migrations occurred in Europe during the last recession, with workers moving from the hardest-hit countries to more developed ones. Today, with economic recovery across the continent, the lack of qualified labour has become the main obstacle to growth in many countries, Vujčić said.

According to a 2018 survey by the European Investment Bank, companies in the CESEE believe the limited availability of qualified labour is one of the biggest obstacles to investment, he added.

In that context, creating and keeping qualified labour has become a key goal for policy makers in those countries, Vujčić said. Achieving that goal calls for creating an environment in which talented individuals will be motivated to stay and work in their homeland, he added.

Raising salaries to a sufficiently high level in those countries is just part of the solution, given that job security is another important factor without which, despite a high pay, many emigrate, Vujčić said.

There are also many measures which go beyond labour market policies and can offer the right incentives to the workforce to stay, such as affordable housing, notably for younger families, and education, he added.

Reforms aimed at aligning education and corporate sector needs will contribute not only to the creation of skilled and motivated employees, but also reduce the likelihood of such labour staying unemployed, and consequently desperate and discouraged, for long, said Vujčić.

More news about economic growth can be found in the Business section.

ZAGREB, July 11, 2019 - The Croatian National Bank (HNB) has increased its projection of economic growth this year to 3.1%, a HNB Council said in a press release on Wednesday.

The current indicators of economic activity and the expected growth of public and private investments as well as household consumption indicate that the growth rate of real GDP in 2019 could be 3.1%, the press release said.

The HNB's forecasts at the end of last year projected a growth of 2.7%, while in spring it was decreased to 2.5%.

The latest increase is in line with the European Commission forecast published yesterday. The Commission revised its forecast of Croatia's economic growth this year to 3.1% from the earlier projected 2.6%.

The HNB also estimates that employment growth and the decrease of unemployment could slow down very gradually, and that this year's inflation rate could shrink to 0.7%.

The surplus on the current and capital accounts is expected at 3.1% of GDP and its reduction in comparison with last year is due to the deeper foreign trade deficit, whose effects are alleviated by the growth of the net export of services and higher absorption of EU funds, the press release said, adding that the relative indicators of foreign indebtedness therefore could slow down.

According to the government's convergence programme, the general government's deficit could be about 0.3% of GDP this year, while the European Commission forecasts a possible budget surplus, the HNB said.

The HNB will therefore continue to implement an expansionary monetary policy and support economic growth, while maintaining a stable kuna-euro exchange rate, the press release said, adding that the expansionary monetary policy and reduced interest on lending by domestic credit institutions resulted in stronger household lending.

The financial system remains moderately exposed to risks, the continuation of economic growth has a positive impact on structural imbalances, non-financial companies have better business results, and households' currency clause and interest risks are being reduced, the HNB said, adding that the banking system remained highly capitalised and liquid.

More news about the Croatian National Bank can be found in the Business section.

ZAGREB, July 10, 2019 - The European Commission on Wednesday revised markedly upward Croatia's GDP growth in 2019 to 3.1% from first estimates of 2.6%.

"Real GDP growth is forecast to pick up to 3.1% in 2019 as a whole before moderating to 2.7% in 2020," the Commission says in its interim European Economic Forecast for the summer 2019.

The Commission also notes that the rise is on the back of domestic demand. "Domestic demand remained the main driver of growth due to strengthening investment and robust household consumption," reads the report.

Croatia's exports rebounded following an unexpected contraction in the previous two quarters. "High frequency indicators, labour market and survey data all suggest strong domestic demand-driven growth should continue throughout 2019."

In the previous Economic Forecast paper issued in May, Croatia's economy was forecast to rise 2.6% this year, and the pace of growth was to decelerate to 2.5% in 2020.

"Croatia’s economy grew by 2.6% in 2018, slightly less than expected due to a particularly weak fourth quarter. However, real GDP growth rebounded beyond expectations in the first quarter of 2019 by 1.2% quarter-on-quarter," reads the latest report issued on Wednesday.

"As wages and employment continue to grow amidst low inflation, household consumption is set to remain the main driver of growth throughout the forecast period.

"Investment growth is expected to strengthen further in 2019 before moderating in 2020, supported by an improved uptake of EU funds and low interest rates.

"Goods exports are expected to rebound in 2019, while service exports are expected to continue easing as supply side constraints become more evident and international competition in the tourism sector intensifies.

Thus, the new report reads that "overall, the contribution of net exports to growth is expected to decrease further in 2019 before improving in 2020, though remaining negative."

Strong final demand growth should be reflected in a pick-up in imports of both goods and services in 2019.

"Employment growth should moderate over the forecast horizon and the unemployment rate is expected to continue declining towards an historic low in 2020," the Commission says.

"In the first five months of 2018, inflationary pressures remained subdued due to negative inflation in unprocessed food prices as a result of changes in the applicable VAT rate adopted in September 2018.

"As labour shortages become more apparent in some sectors, wage growth is projected to accelerate. However, the reduction in the standard VAT rate in January 2020 and stagnating energy prices should dampen inflation. Overall, inflation is forecast to remain subdued at 0.9% 2019 and 1% in 2020."

More news about Croatia’s economic growth can be found in the Business section.

ZAGREB, July 2, 2019 - Economy Minister Darko Horvat said on Tuesday that GDP was growing primarily owing to the state's strong contribution to the implementation of major investment projects and that the second quarter would be better than the first, when GDP grew 3.9%.

Speaking at a conference on exports, organised by the Lider business weekly, Horvat said that independent economic analysts last autumn said that private investments had been kick-started but that big state infrastructure projects were lacking.

"That is what is happening now - investments worth 20 billion kuna. A 11 billion kuna investment cycle has been launched based on projects funded with grants, without loans or guarantees. That is one of the reasons for the GDP growth of 3.9%," said Horvat, expressing confidence that GDP growth in Q2 would be even higher.

He said that EU funds were changing Croatia because they helped launch major infrastructure investments but also because there had been an increase in the share of technology, software and licence imports and the transfer of know-how in the structure of imports.

Horvat also expressed confidence that exporters positively viewed the government's efforts to introduce the euro.

Addressing the event, the head of the northern Croatian Međimurje County, Matija Posavec, said that his county was the most successful in Croatia according to many parameters.

He said that the county's exports were twice the volume of imports, that the county was absorbing EU funds at a high rate and that it worked constantly to improve the business climate.

Owing to local workers' first-class productivity, foreign companies are moving their plants to Međimurje, he said.

He added that 40 business zones were active in the county, that investments were made in the education system and that construction permits were issued in 1-3 days.

The unemployment rate is at 4.4%, the county head said, calling on the state to further reduce the tax burden on the business sector and help raise wages.

More news about Croatia’s economic growth can be found in the Business section.